How to use the correlation page to build a profitable portfolio.
When used correctly, the Token Metrics correlation page can be one of the most useful parts of our platform.
Correlation is a measure of the relationship between the price movements of two assets.
A positive correlation means that if we expect an increase in one asset, we can expect an increase in the correlated asset.
A negative correlation works the opposite way: if we expect a decrease in an asset, we can expect an increase in the negatively correlated asset.
A correlation of zero implies that there is no relationship between the movement of two assets.
The maximum possible positive correlation is 1.0, and the maximum negative correlation is -1.0.
The reason correlation is important when looking at cryptocurrencies (or any assets for that matter) is portfolio allocation.
The ideal portfolio has a correlation coefficient as close to zero as possible.
A loss in one asset can then be offset by a gain in another asset.
Additionally, a portfolio that has coins highly positively correlated to one another could get rekt in the event of a market downturn.